I predicted the markets would drop on Monday. I was completely wrong, we're clearly in a little bull market. On Friday the markets tested the 200 day moving average from above, and it held. I expect the markets will be up some more next week, perhaps hitting an S&P of 1140. I expect this bull market will be short lived; soon we should see another drop, perhaps to the 1050 region, perhaps a bigger drop to the 900 region. Banking, consumer spending and confidence, payrolls, city and state deficits: the overall picture out there isn't very pretty.
Russia is having a 100 year heat wave / drought, with temperatures up to 100 degrees. They've had massive fires in the Moscow / Kiev area, burning down 2000 homes and 300,000 acres of wheat field, peat bog and forest to date. That's nearly 500 square miles. Russia is not well prepared for such heat and fires, as for example California is. Due to the number of acres of Russian wheat that have burned up, Russia has banned exports of wheat this year. Most Russians are wearing breathing masks these days, the air quality is worse than the worst LA has ever seen.
The Chinese are doing bank stress tests. The US and European stress tests were considered pretty tame - Europe asked their banks to test for a 1% drop in GDP, some one in Greece gets a cold, and some French guy gets served a soggy baguette for his breakfast. Reportedly, Chinese banks were told to imagine a 60% collapse in property values and problems with their loans to steel and cement companies. When this is all over, Chinese regulators might actually have a sense of which banks are healthy and which are not.
The jobs report came out, and it wasn't pretty. We need about 125,000 new jobs per month to keep up with population growth, and another perhaps 100,000 new jobs per month to be on a road to recovery, something like 225,000+ new jobs a month. We're getting more like 75,000, a third of what we need.
Are your state taxes going to go up to pay for 50 year old cops to sit on their butts? A recent study by Dr. Courtney Collins at Mercer University and Dr. Andrew Rettenmaier at Texas A&M show that we're heading for a fiscal train wreck. States currently admit that their pension funds are short nearly $1T, however those calculations presume that their funds make investment income of 8% per year, which none have done for a decade. Making more reasonable assumptions about the 153 state plans' investment returns, Dr Collins and Rettenmaier show that the unfunded liabilities are more than $3T, an average of about $30,000 per taxpayer. Most of these pensions and health benefits are protected by contract and in many cases by state constitution; when the bill comes due, taxpayers will be on the hook, and other public services will be severely cut. States cannot declare bankruptcy, so there's no easy out.
What's going to happen? Major lawsuits, huge tax increases, cutbacks in schools, police, fire departments, so that these slugs can continue to sit. What can you do? Don't live in the worst states. Where to live: Delaware, Florida, Georgia, Indiana, Iowa, Nebraska, North Carolina, North Dakota, Tennessee, Texas. These are the states where there will just be trouble.
Many states are starting to put limits on pensions for new hires, but that's just a band aid. The real solution? We need to end all these special state retirement programs and put everyone into social security. No more two-track retirements, great for state workers, sucky for tax payers. Also, I recommend free cigarettes, vodka, McDonald's cheeseburgers and cokes for all retired cops and government workers.
The Mexican government has issued a warning to its citizens that it might be dangerous to travel to Arizona. I read an article that claims Mexicans legally crossing the border to shop spent $2.7B in the US last year; then there were interviews with a couple of (latino) shop owners in the US saying that Mexican traffic was down enormously. I imagine I was supposed to think, "Oh, we have to be nicer to our illegals." In fact, I wondered what it was about US law and culture that made Mexicans come to the US to open a shop to sell goods to Mexicans. Why not just open your shop in Mexico? I think we can all guess the answer to that. Our immigration problem will not really be fixed until Mexico stops being a thugocracy and develops a real rule of law.
There are persistent rumors that Obama will issue an executive order in the next couple of weeks telling Fannie Mae and Freddie Mac to adjust principles on millions of underwater mortgages. This will be presented as a new stimulus: reduced monthly payments are just like getting free money in the mail every month. Congress today has little stomach for more deficit spending - even moderate democrats now shy away - so this is one of the few levers Obama has left to pump up the economy before the election. Obama's political calculation is said to be he'll have more grateful homeowners than disgusted taxpayers. Since about two-thirds of American adults own a house, but only about half of us pay taxes, perhaps he's right.
Where is there inflation in our economy? Food? Gas? Medical care? There is one industry that clearly leads the rest in price increases.
So, your kids are getting this enormously over-priced degree. Is it worth anything? Here's the degrees that do and don't pay off:
Obama says he wants 70% of our youth getting college degrees by 2020. I wonder how many of those degrees will be in science and engineering? And how many in "Interdisciplinary Studies?" (Does anyone even know what that means?)
The next balloon that's inflating? It's in unemployment and food stamps. Apparently nearly half of our population can't feed themselves without help from Obama.
It was always going to be a little blip in history that 5% of the world's population manufactured half of everything, as the US did after WW II. Europe, Japan, and the US have declining manufacturing. China, soon to be #1 in the world, Brazil and India are increasing. We got to do it at a time when oil was cheap and everyone else's factories had been bombed to rubble. They get to do it when oil is expensive and climbing, and the world is in a depression.
U.S. District Chief Judge Vaughn R. Walker declared California's ban on same-sex marriage unconstitutional Wednesday, saying that no legitimate state interest justified treating gay and lesbian couples differently from others and that "moral disapproval" was not enough to save the voter-passed Proposition 8. California "has no interest in differentiating between same-sex and opposite-sex unions." His 136 page opinion was well reasoned, and included extensive coverage of the evidence offered on children raised in same-sex households. "The evidence shows conclusively that moral and religious views form the only basis for a belief that same-sex couples are different from opposite-sex couples." Walker called the exclusion of same-couples from marriage "an artifact of a time when the genders were seen as having distinct roles in society and marriage. That time has passed."
Andy Pugno, a lawyer for the backers of the ballot measure, said he believed Walker would be overturned on appeal. Walker's "invalidation of the votes of over 7 million Californians violates binding legal precedent and short-circuits the democratic process," Pugno said. He called it "disturbing that the trial court, in order to strike down Prop. 8, has literally accused the majority of California voters of having ill and discriminatory intent when casting their votes for Prop. 8."
Curiously, no one is suggesting that the fact that Walker is gay means he should have recused himself.
I believe, like many others, that this will wind up in the Supreme Court. Kennedy, normally the swing voter, is likely to be swayed by Walker's detailed reasoning. The swing vote may well turn out to be Sotomayor, who will have to balance her liberal philosophies against her Catholic beliefs. I think there's a pretty decent chance that the US will soon have gay marriage in all 50 states. Personally I'm pretty ambivalent on gay marriage, but I do think it distasteful that one unelected guy, Walker, decides for all 310 million of us. This is what happens when our elected legislators refuse to legislate: lawyers and judges step into the power vacuum. I find it even more distasteful that marriage, clearly a state function, is going to be yet another set of laws that get preempted by federal law. Doesn't anyone care about the 10th amendment?
We continue to hear that 11 million children in the US go hungry each day. Where are these children? In fact our teenagers, especially in the lower classes, are getting fat - so fat that liver transplants in teenagers are changing from unheard of to common. Soon Foie Gras will come from more than force-fed french geese. Two-thirds of women are overweight and a third obese, according to the National Center for Health Statistics. Obesity doubled from 1993-2008. According to researchers at Johns Hopkins, if the rate continues at this pace, by 2015 75% of adults and nearly 24% of children will be overweight or obese. If nothing is done obesity will soon become the leading preventable cause of death in the United States.
Leading causes? High fat and sugar junk foods, especially the ubiquitous cheeseburger / fries / coke, and the fact that no one drinks water anymore. The solution? As a culture we need to eat a lot less meat, especially ground beef, and we need a major tax on sodas like New York is enacting. We kicked the smoking habit, we can kick the corn sweetener, greasy hamburger & taco habit too.
Fun Fat Facts